The Public Private Partnership wave has come to Texas. P3s or PPPs are being used to to deliver new projects to the public in transportation and vertical construction. Is it only a matter of time until the P3 wave moves into the world of water infrastructure? For the reasons discussed below, it seems that the time will come because the water industry is uniquely positioned to deliver successful P3s. Depending on legislative action, this time may come sooner than later and it might be as wide open as the Wild West or it might be as restricted as civil design-build under our current statutory frame-work.
Water delivery is significantly different than transportation in that the end users of water projects are conditioned to paying for the resource they receive. Putting aside the fact that water as a resource is unique from other natural resources in that users typically do not pay for the resource itself, users are accustomed to paying for the capture, treatment, and delivery of water to their homes and businesses. This fact provides the essential distinction between water and transportation.
In the transportation industry, users have historically expected to drive on “free” roads. Now, we all know these roads are not “free”, but users were not typically required to pay per use. In order to make most P3 transportation projects successful, new roads are tolled. Many drivers resist paying tolls because toll roads have not been widely used in Texas.
However, water is different. Because users are not inherently against paying for water delivery, there is room for P3s to be successful without the public backlash that toll roads received when the P3s concept was introduced to the transportation segment.
In order to be successful, a P3 needs the ability to generate revenue for the private partner. Roads use tolls. Water projects can tap into the rate structure users pay. Raising utility rates is always a sensitive issue for municipalities and utilities. But the political climate in Texas is changing and the passage of Prop. 6 in the last election demonstrates that the electorate understands the need for increased investment in water infrastructure. Owners requiring additional infrastructure and construction of water projects can tap into voter awareness to promote the use of P3s.
The ability to share revenues paid by users with the private development partners should be a jumpstart to the use of P3s in water project construction. Only time will tell if this delivery method proves to be viable, but the long term economic conditions, increased population, the political climate favoring low taxes, and the extreme need for water capture and delivery seem to foretell a movement towards P3s for water construction much like we’ve seen in transportation construction recently.